Is the party ready to start again?

It's no surprise to our readers that I'm a fan of shorting, in fact I prefer to be short. I make more money, faster when I'm short. So please excuse me should I come off "giddy" in my analysis.

The news today on the jobs front was an encouraging sign that the engineered soft landing scenario had some legs to it. The unemployment rate came in near five year lows and throw in falling oil prices for good measure and you'd think that this was going to be another notch in the belt of the bulls. I said in my early post today "watch how the market responds to the news." Right out of the gate the markets gapped up (which set up some nice opportunities for gapping plays) and proceeded to sell of through the early morning trade and then again through early afternoon with the markets closing essentially flat.

Concerns immediately turned toward the jobs report reflecting diminishing chances of a rate cut any time soon. Of course also weighing heavily on the market, NEW said last night that they stopped accepting loan applications, raising some concerns that bankruptcy was in the cards. Fed Governor Susan Bies said the sub-prime problem might JUST be starting; this of course was a key development in today's market action. As I said earlier today, watch how the market reacts to the news to get an idea of where it is going. Anyone who reads a bit and has traded more than a year knows, when the market is optimistic, it is optimistic. It doesn't even matter if the news is good, an optimistic market will look for the silver lining, it will relegate bearish news to the back page and blow even the slightest positive news completely out of proportion. Conversely, a moody market will act in opposite fashion. I'm sure if you thought about it for a few minutes, you could come up with a few examples of a piece of news that you thought would have one effect on the market and it turned out to go the opposite way. This tendency of the market to interpret, translate and even distort or ignore events is partially why I'm not a fan of fundamental analysis. All the best fundamental analysis in the world doesn't make a lick of difference when a market is in a mood. The market is not necessarily always about reality, it is more often than not, about perceptions.

Today could have gone a different way. The sub prime fears could have been downplayed as an isolated incident in the market or having already been discounted. The news could have been about the near 5-year unemployment lows and the falling price of oil and its ripple effect on our economy. It could have been about the upwardly revised prior two months of payroll data reflecting an even stronger jobs market than expected. Or, the market could have taken things a whole lot worse than it did. Today, as yesterday, saw a decent opening gap and it also saw a squandering of that opportunity.

There are other signs of the handwriting on the wall, such as volume. In an advance, if the market participants are largely optimistic regarding the outcome, then they'll be falling all over themselves to get on board. No one wants to be left standing out in the cold rain at the train station as the last departure rolls off into the sunset. Remember that old Wendy's commercial "Where's the Beef?"? Well, where is it? Volume has actually contracted as the advance has played out, except for the Nasdaq Composite, which saw an increase in volume on a bearish looking candle today. A few other noteworthy developments took shape. The DOW and the S&P put in star formations, which show indecision. Indecision in turn shows that the upward bias in the market is being questioned. The IWM (Russell 2K ETF) put in a hanging man, as did the MDX. The Naz put in a pseudo bearish engulfing candle, well not really, but almost. In any case, it wasn't a confident market.

My trusty indicator showed it's first negative divergence right out of the gate today in the SPY, Q's and DIA. the Q's showed considerable weakness into the last half hour of trade and the DIA never even got the indicator to turn the corner to reflect a bit of hope, at any point during this whole episode. Ironically though, the DIA looked the best during the last half hour of trade today, dare I say, even bullish.

It seems to me that this rally has lost its zest. I think it is very likely that the next week will bring renewed weakness and further declines, probably will even take out the March lows. My portfolio reflects this opinion, as it is now currently 100% in the market and of that, approximately 65% short. I hope to bring you a few ideas over the weekend, but to hold you over, I'm now long: BPG, PRW and RBY. I'm currently short: HWCC, OMTR, RIMM and WFR. Have a great weekend and don't forget to check back.